Insights from the Pricing & Strategy Summit

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Posted by Administrator | Posted in Uncategorized | Posted on 25-05-2010

We have hosted Hermann Simon last week in India . Following is a summary of Key insights from the Hermann’s Hidden champion presentation.

Very Deep vs. Broad – This is a key strategy and one highlighted by Hermann Simon last week presentation in India is case study of Hidden Champions is Winterhalter. Originally a manufacturer of commercial dishwashers, they decided to abandon dishwashers for hospitals, schools, companies, and organizations and JUST FOCUS on dishwashers for hotels and restaurants. And they’ve gone deeper within this niche by providing water conditioners, detergents, and other services focused around cleaning dishes in hotels and restaurants. As Hermann says “only focus and concentration lead to world class.”

A Narrow Niche Pursued Around the Globe – Secondly Hidden Champions” are Closer to the Customer and Command Higher Prices. It seems that of the Hidden Champions have this characteristic in common: Five times as many employees (25-50%) have regular customer contact. This is compared to larger companies who typically have only 5-10% of their employees who have regular customer contact. So what is the value of customer closeness? According to Simon, by staying close to your most demanding customers, these companies drive performance and innovation. Their strategies become value driven, not price driven, so they can charge 10-15% more for their product or services.

China is Coming with Quality — He brought news that Chinese firms are focused on building competing quality products that will challenge even Germany’s lead in many export areas — and that they are building factories in Germany and the U.S. and other parts of the world.! With over $2 trillion in surplus cash (vs. the U.S. $9 trillion deficit), they have the financial muscle to do it.

To your success
Knowledge Capital

Don’t just listen to the Voice of your customers, listen to the Voice of your products/services

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Posted by Administrator | Posted in Uncategorized | Posted on 13-05-2010

Do this simple experiment: Try coming up with an exciting innovation .Give yourself a minute and write your idea down. Now, pick a small object from your desk and imagine splitting it into two parts and now think of the new benefits that new form can offer you, write your idea down. Chances are that you’re likely to come up with more exciting results the second time around. That’s because people tend to be paralyzed when facing a blank state but generate better ideas when given a framework to be creative.

This is the premise of the famous article written by Jacob Goldenberg, Roni Horowit, Amnon Levav and David Maursky in HBR on Innovation. They argue that most ideas for new products are either uninspired or impractical. A systematic process (based on five innovation patterns) generates ideas (novel ideas) that are both ingenious and viable.

Many companies have been successful using this method called systematic inventive thinking. It replaces the traditional creative free for all with a highly disciplined “inside the box” approach to creative thinking and new idea generation. Here contrary to VOC (voice of customer) it starts with the existing product or services and its characteristics rather than the unmet needs of the customers. The process begins with enlisting the essential elements of the product, both its physical components and its attributes and its immediate environment, following one or more of the innovation patterns and then manipulating these patterns to come up with something new. Their research shows that most successful product Innovations fit into at least one of these five patterns.

The five patterns of Innovation are:

Subtraction: In applying patterns of  subtraction , instead of trying to improve a product by adding components  or attributes , we remove them, particularly those that seem desirable or indispensible-( lead in gasonline,sugar form Cola).Having removed an element of the product, we often see an opportunity to replace with something better. To avoid drifting too far it is better to look for the replacement within its immediate environment. Dell computers for example, removed the distribution channel (which was an essential component of the industry) from the computer industry and created the highly profitable and revolutionary delivery model. Apple successfully uses it by subtracting the number of buttons on its products (you only have two options for its ringer; on or off etc)

Multiplication: This pattern is somewhat different from the first approach. Here we make many copies of the existing product and then alter these copies in some different way. However, this way should be something that achieves more than a quantitative change. Gillette’s double bladed razor is a perfect example: by adding one more blade, they were multiplying however by adding an extra blade that raises whiskers so that the other blade can cleanly cut them is a qualitative change that made a huge impact. The key word here is qualitative change: change that adds increases the utility function of the product dramatically.

Division: Function follows the form here, by dividing an existing product or service into its components, we can suddenly see something that in a totally different light. This change in perspective leads us to configure these parts in unanticipated ways or sometimes just keeping the parts separate can lead to unforeseen benefits. Division can take many forms: it could be physical (product is cut into its components) functional division (product components with different functions are separated) or preserving division (a product is divided in such a way that each part preserves the characteristics of the whole)

Of these functional divisions is the main source of product innovations: The old Wi-Fi with speaker and turntable in one cabinet, has now given ways to tuners, specialty speakers, CD and tape players.

Task Unification: Often task unification can lead to significant   innovation. Significant innovation can happen when we are able to assign a new task to an existing element of the product or its environment, thereby unifying two tasks in a single component. The fundamental point is to look for bundling of tasks: if something exists in the closed world of the product and its environment anyways, why not just see whether it can be made to do double duty? One of the simple examples is that of suitcase with wheels, which eliminates one of the most callow products of all time: the bungee strap-equipped foldable luggage cart. Another example is the use of same cable by cable companies to provide communications and entertainment service.

Attribute dependency Change: This pattern involves analyzing the dependent relationships that exist between attributes of a product and the attributes of its immediate environment. For example, some product characteristics such as color have a strong dependent relationship with the character of the environment (the user’s gender/age etc.0

By trying to create new dependencies where they don’t ordinarily exist one can come up with innovative ideas for the product. For example, men and women used the same type of razor for decades before marketers came up with the razor designed especially for women. If only product developers looked for relationships between users and its environment they would have come up with this idea years earlier.

These patterns are often used in conjunction with one another. Most developers apply only two patterns to each product. However, research shows that nearly half the useful ideas emerge from an existing product by applying just one of the patterns. These patterns of innovation upset developers’ assumptions about the fixedness of the product. This process also works well as human mind tends to work best within the confines of defined problem rather than the brainstorming session where you let the imagination loose. Listening to the “Voice of the product” takes a lot of practice, as now one has to look at it from a totally new perspective.  This is a lot of hard work and it takes a while for one to get comfortable with the process, but if the process was easy, it wouldn’t be this successful.

To your success

Knowledge Capital